Three Reasons Not to Ignore the Obama Budget

For years now, the conventional response to any presidential budget has been to declare it “dead on arrival,” or sometimes “dead before arrival.” Today’s partisan gridlock guarantees that much of President Obama’s new budget will be somewhere between attacked and ignored on Capitol Hill. Veteran budget wonk Stan Collender describes this year’s White House budget as “more dead on arrival than most.”

That’s all undoubtedly true. But it doesn’t mean one should ignore the whole Obama budget. Here are three reasons why:

The annual appropriations dance. Unlike past years, Congress already has agreed on a ceiling for annually appropriated spending, which account for about 30% of all federal outlays. In the 1,438-page Budget Appendix the White House explains in excruciating detail how it would divvy up that $1.15 trillion. Congressional appropriations committees won’t take all the White House recommendations, but they won’t ignore them either. And, remember, one of the few things that Congress really does have to do this year is to pass appropriations bills.

The earned-income tax credit. Republicans and Democrats don’t agree on much these days, but there is a widening consensus that it’s foolish to limit the benefits of earned-income tax credit – which supplements the earnings of low-wage workers – to families with children. Some influential Republicans- — including Sen. Marco Rubio of Florida (here) and former Bush adviser Glenn Hubbard of Columbia University (here) – agree with the president that it makes sense to offer childless workers an incentive to work even at very low wages, and for the government to supplement their paychecks a bit.

Now, they don’t agree on everything. Sen. Rubio would pay for this by paring EITC benefits to working-poor families; Mr. Obama would, instead, raise $60 billion over 10 years by boosting taxes on partners in private equity funds (as House Ways & Means Chairman Dave Camp would in his new tax-reform plan) and on some high-income self-employed workers. But the common focus on aiding low-wage workers without children suggests that when the next tax bill comes along, something for them will be included.

Tax reform. It’s not imminent, but both sides are putting more details on the table and that’s a necessary step towards actually doing something someday. Mr. Obama’s budget repeats his proposals to limit the value of itemized deductions to upper-income taxpayers (whose get more of a dollar tax break because they are in higher tax brackets); Mr. Camp proposed to do much the same thing. Yes, Mr. Camp is expected to surrender the chairmanship of Ways & Means, but his tax reform proposals will be a benchmark against which future GOP tax reform plans are measured. The Michigan Republican also would finance tax cuts for individuals by raising revenues from businesses, a move that many Democrats would be happy to emulate.

And in a new wrinkle, the Obama budget offers Democrats a huge incentive for pursuing corporate tax reform: He says the transition to a new corporate tax code would bring a temporary windfall of $150 billion over four years from taxing foreign earnings that the Treasury expects firms to bring home, repealing the last-in-first-out method of accounting for inventories and revamping acceleration depreciation. Instead of using that moneyto make corporate tax reform revenue-neutral over the 10-year budget window, the president suggests devoting it to investments in transportation infrastructure. See p. 9 of this document.

David Wessel is a contributing correspondent to The Wall Street Journal and director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. He can be reached at dwessel@brookings.edu

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